JAKARTA, Oct 12 (Reuters) - Indonesia's government has taken steps to over-ride patents on a range of HIV drugs, highlighting a growing trend by Asian states to allow local production of cheap generic drugs that cut into sales of global pharmaceutical companies.

President Susilo Bambang Yudhoyono quietly issued a decree last month authorising government use of patents for seven HIV/AIDS and hepatitis B medicines held by the likes of Merck & Co, GlaxoSmithKline, Bristol-Myers Squibb , Abbott and Gilead.

The international trade body representing major drugmakers said the move set "a negative precedent". Individual companies affected did not provide immediate comment.

The decree states Indonesia implemented the measures to "meet the urgent need for antiviral and antiretroviral treatments".

An estimated 310,000 people are living with HIV in Indonesia, Southeast Asia's largest economy. The prevalence rate among the 15 to 49-year-old population is 0.2 percent, according to 2009 statistics from the U.N. Aids website.

Unreported cases mean that the true figure could be higher.

Under World Trade Organisation rules member countries are permitted to take measures to over-ride patents when it is deemed necessary to protect public health.

Yudhoyono signed the decree without fanfare on Sept. 3 and it was only recently highlighted by Western groups campaigning for increased access to drugs in the developing world.

The issuing of the decree follows a decision by India in March to strip German drugmaker Bayer of its exclusive rights to a cancer drug.

India's highest court also heard final arguments last month in a landmark case over drug patents involving Novartis's leukaemia drug Glivec that could change the rules for the country's healthcare sector and potentially curb its global role as a supplier of cut-price generic medicines.

At the same time, China in June overhauled parts of its intellectual property laws to allow local production of patented medicines in another initiative likely to unnerve foreign pharmaceutical companies.

The amended patent law allows Beijing to issue compulsory licences to eligible companies to produce generic versions of patented drugs during state emergencies, or unusual circumstances, or in the interests of the public.

BIG COST SAVINGS

If implemented to the full, the measure taken by Indonesia would introduce widespread generic competition and generate big cost savings in the world's fourth most populous country.

It is not the first time that Indonesia has made an order giving government control over HIV drugs but the latest decree goes further than earlier ones in 2004 and 2007 by covering more modern medicines.

"Indonesia has set an important precedent, not just for the people living with HIV within its country, who have been campaigning for this, but also for other developing countries," said Michelle Childs of Medecins Sans Frontieres.

"This is one of the widest licences issued by a government and rightly reflects the reality that a range of treatment options are needed," Childs said.

The U.S.-based group Public Citizen, which also campaigns for greater access to medicines in poorer countries, said the move would greatly expand access to newer and more appropriate antiviral medicines against both HIV and hepatitis B.

However, the International Federation of Pharmaceutical Manufacturers and Associations, representing global drugmakers, expressed concern at the wide-ranging decree.

Andrew Jenner, its director of innovation, intellectual property and trade, said developing countries had a right to over-ride patents by issuing so-called compulsory licences in certain limited circumstances but this should be a last resort.

"Systematic issuance of compulsory licenses by Indonesia sets a negative precedent and can reduce the incentive to invest in the research and development of new medicines, including HIV/AIDS and hepatitis therapies," he said.

"We believe that negotiated approaches, such as tiered pricing or voluntary licensing, are generally more effective and sustainable, both medically and economically." (Additional reporting by Ben Hirschler in London; Editing by Jeremy Laurence and Jane Merriman)

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